Society for Social Work and Research

Sixteenth Annual Conference Research That Makes A Difference: Advancing Practice and Shaping Public Policy
11-15 January 2012 I Grand Hyatt Washington I Washington, DC

17026 Why Social Workers Should Consider a Negative Income Tax

Sunday, January 15, 2012: 9:45 AM
Independence D (Grand Hyatt Washington)
* noted as presenting author
Jessica Wiederspan, MSW, Doctoral Candidate, University of Michigan-Ann Arbor, Ann Arbor, MI
Elizabeth Rhodes, MSW, Doctoral Candidate, University of Michigan-Ann Arbor, Ann Arbor, MI
H. Luke Shaefer, PhD, Assistant Professor, University of Michigan-Ann Arbor, Ann Arbor, MI
Background: A Negative Income Tax (NIT) is a guaranteed income policy where families under a certain income receive a base level of income support from the government. Payment decreases as income rises, and eventually stops when income reaches a certain level. The purpose of this study is to examine if and how the NIT could replace most existing means-tested programs and provide greater support to poor families.

Methods: We estimate what a NIT would have cost in 2004 and 2009 using the 2004 and 2009 panels of the Survey of Income and Program Participation (SIPP). We use SIPP family-level income data, which allows us to subtract families' income from TANF and SSI, two programs we propose to replace with the NIT. For each observation, we calculate the amount needed to bring them above 75, 100, 133, and 150% of poverty. From this, we sum the amount needed to bring all families up to these respective thresholds. By using family-level weights, we estimate the total amount needed to bring all families in the US up to these thresholds.

We simulate three NIT variations, adopting various marginal tax rates and incorporating a work reduction effect somewhat larger than what is suggested by the existing literature. We compare the cost estimates to the level of federal expenditures for the means-tested programs for fiscal year 2007, drawing from a multiple sources and attempting to account for benefits and administrative costs.

Results: For calendar year 2004, we suggest a NIT with a 50 or 66% marginal tax rate (MTR) and a minimum threshold of 100% of poverty could be implemented for considerably less than is currently spent on the means-tested programs; with a 50% MTR the benefit would not phase out until participants' income reaches 200% of poverty. Even during 2009—a year in which poverty increased significantly—the cost of a NIT with a 100% of poverty threshold is well below 2007 expenditures on the means-tested programs for a NIT with a 66% MTR and only $40 million above 2007 expenditures for a 50% MTR.

The estimates show that a NIT could be implemented without significantly expanding means-tested expenditures. While the current safety net leaves 43.6 million in poverty, the NIT spreads resources more evenly across low-income families, redirects more resources to the very poor, and shifts resources from administration to program benefits.

Implications: We find four reasons why social workers might prefer a NIT to the current means-tested system: 1) the current system fails to cover numerous groups of people; 2) it is administratively complicated and expensive; 3) it often prevents the poor from engaging in more productive activities; and 4) it perpetuates ideas about stigma and deservingness that the NIT would not.

Based on the analysis and the advantages of the negative income tax, we make a case that its passage is more feasible now than at any time since the 1970s, and suggest what advocates can do to get such a policy on the national agenda.

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